Where an individual is determinably a member of the clergy, a regular minister of a religious denomination, or a member of a religious order, and is also employed in a qualifying function, he or she may take advantage of the clergy residence deduction (the "Deduction") established under the Income Tax Act (Canada) (the "Act"). For the purposes of calculating income taxes owed, the Deduction provides the eligible taxpayer with a reduction in his or her total taxable income equal to the fair rental value of certain housing provided to, owned by or rented by the taxpayer, provided he or she meets the requisite status and function tests.
Recently released information technicals from the Canada Revenue Agency ("CRA") along with a recent decision of the Tax Court of Canada provide valuable guidance on who may claim the Deduction and under what specific circumstances the Deduction may be claimed. Below is a summary of this guidance.
Dormitory as Principal Living Accommodation
Under the Act, provided a person meets the requisite status and function tests, they may deduct from their income, for the purpose of calculating their income taxes payable, the amount spent on rent and utilities paid for their principal place of residence or principal living accommodation ordinarily occupied during the year.
In the first of the two recent information technicals, CRA was asked to consider whether a dormitory room is a "principal place of residence" or "principal living accommodation" for the purposes of the Act and whether the fees paid for use of the dormitory room could be used to calculate the Deduction. CRA concluded that while a dormitory does not meet the definition of a "place of residence", it does meet the definition of "living accommodation", provided the individual resides or lives in the dormitory and the dormitory includes access to shared facilities (i.e., bathroom, kitchen, etc.). Whether a particular living accommodation is considered to be a person's "principal" living accommodation, however, is a question of fact. To this end, CRA concluded that a living accommodation will be considered to be ordinarily occupied as a person's "principal" living accommodation if the individual "regularly lived, slept, received mail, etc.", at the accommodation.
As to whether the fees paid for use of a dormitory room could be considered "rent" for the purposes of calculating the Deduction, CRA relied upon the definition of the word "rent" as set out in the Concise Canadian Oxford and Black's Law dictionaries as well as Ontario's Residential Tenancies Act, 2006. Accepting that "rent" constituted monetary consideration paid to another person for use of, or right to occupy, a rental unit, residential property, or similar premises for a period of time, CRA concluded that the fees paid for use of a dormitory room is considered rent for the purposes of the Act.
Eligibility of School Chaplain to Claim the Deduction
In the second recent information technical on this matter, CRA was asked to consider whether a school chaplain could claim the Deduction. While CRA did not provide a definitive answer with respect to the particular taxpayer who was the subject of the inquiry, it did confirm how the job description of a school chaplain could be reviewed to determine whether a school chaplain meets the requisite status and function tests. CRA confirmed that the status test will be easily met by a school chaplain if it is a condition of his/her employment that he/she be an ordained priest. This requirement enables the chaplain to meet the status test undoubtedly as a member of the clergy.
Requiring more scrutiny, however, is whether a school chaplain meets the function test as this is a question of fact. Under the Act, an individual may meet the function test if the individual is either: (a) employed exclusively in full-time administrative service; or (b) in charge of, or ministers to a diocese, parish or congregation. Ruling out that the particular school chaplain in question was not employed exclusively in full-time administrative service, CRA went on to consider the factors that may indicate whether a school chaplain is ministering to a congregation.
First, CRA confirmed that the inclusion of certain teaching obligations in the employment duties of a school chaplain would not automatically lead to the conclusion that the school chaplain is not ministering to a congregation. Importantly, however, ministering to a congregation must be an integral part of the school chaplain's overall duties. Ministering to a congregation may include such tasks as leading weekday worship services, administering sacraments, presiding or assisting in other religious celebrations, and officiating weddings, services and funerals. In determining whether ministering constitutes an "integral" part of a taxpayer's employment responsibilities, CRA stated that the following factors should be considered:
- how often ministering is performed;
- the amount of time spent ministering; and
- the individual's ministering responsibilities relative to his or her overall job duties.
Second, because a group of students does not constitute a "congregation" for the purposes of the Act, a school chaplain will only be considered to be "ministering to a congregation" if attendance at chapel service is: (a) voluntary; and (b) not limited to individuals who are affiliated with the school. To this end, CRA will consider whether students are required to attend chapel service as a condition of enrollment at the school, or to satisfy an academic requirement as well as whether attendance at chapel services is open to others in the community or the general public.
Provision of Chaplaincy Services through a Third Party
In Moerman v. R., 2015 TCC 295 ("Moerman"), the Tax Court of Canada was asked to consider whether an individual employed by a corporation contracted to provide chaplaincy services could claim the Deduction in respect of remuneration received from the corporation.
In this case, the taxpayer served as the sole chaplain at two hospitals in Alberta (the "Hospitals") and he received remuneration for such services from two sources: (1) honorariums provided by Alberta Health Services ("AHS"); and (2) employment income from John Moerman Enterprises Ltd. ("JME") – a corporation owned by the taxpayer and his spouse. The Minister had allowed the Deduction with respect to the honorariums received by the taxpayer from AHS but disallowed the Deduction with respect to income the taxpayer received from JME.
To the Court's satisfaction, the taxpayer explained to the Court that the funding for the chaplaincy program at the Hospitals was shared by AHS and College Drive Community Church ("College Drive"). In support of the chaplaincy program at the Hospitals, College Drive solicited and was provided with donations from both individual donors and churches in the city of Lethbridge. AHS provided the honorariums to the taxpayer directly for his chaplaincy services and College Drive contracted with JME to render chaplaincy services at the Hospitals. The taxpayer was then employed by JME to fulfil its obligations pursuant to its contract with College Drive.
After confirming that the taxpayer met the requisite status and function tests, the Court concluded that the taxpayer had the right to claim the Deduction in respect of income received from JME as it was clear that he had received remuneration from JME for his services as a chaplain at the Hospitals. To this end, the Courts pointed to the following:
- the taxpayer did not render any ministering services to the Lethbridge churches nor to individual donors who provided funding to College Drive for the chaplaincy program;
- College Drive contracted with JME for the provision of chaplaincy services at the Hospitals;
- the taxpayer provided his chaplaincy services on a full-time basis at the Hospitals in satisfaction of the contract between JME and College Drive; and
- the taxpayer did not render any other services to JME, thus there was no other reason for the payment of remuneration by JME to the taxpayer.
This case confirms that notwithstanding who actually pays the remuneration, the remuneration can still derive from qualifying employment that renders the taxpayer eligible to claim the Deduction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.